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U.S. retail sales rebounded more than expected in March as Americans received additional pandemic relief cheques from the government and increased COVID-19 vaccinations allowed broader economic re-engagement, cementing expectations for robust growth in the first quarter.

The brightening economic prospects were underscored by other data on Thursday showing first-time claims for unemployment benefits tumbled last week to the lowest level since March, 2020, when mandatory closures of non-essential businesses were enforced to slow the spread of the first COVID-19 wave.

The rapidly improving public health environment and the White House’s US$1.9-trillion rescue package are positioning the economy for the fastest growth in nearly four decades this year.

“Consumer spending is leading a strong economic recovery in early 2021,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh.

Retail sales increased 9.8 per cent last month, the Commerce Department said. Data for February was revised higher to show sales dropping 2.7 per cent instead of 3.0 per cent as previously reported.

The broad-based rebound was led by motor vehicles, with receipts at auto dealerships surging 15.1 per cent after falling 3.5 per cent in February. Sales at clothing stores soared 18.3 per cent.

Consumers also boosted spending at restaurants and bars, leading to a 13.4-per-cent jump in receipts. Still, sales at restaurants and bars are 1.8 per cent lower compared with March, 2020.

Receipts at electronics and appliance stores increased 10.5 per cent and sales at furniture stores increased 5.9 per cent. There were also hefty gains in sales at sporting goods, hobby, musical instrument and book stores. Receipts at food and beverage stores gained 0.7 per cent.

Sales at building material stores vaulted 12.1 per cent. Online retail sales increased 6.0 per cent.

Economists polled by Reuters had forecast retail sales would increase 5.9 per cent in March. Many qualified households have received additional US$1,400 cheques, which were part of the massive stimulus package approved in early March. The package also extended a government-funded US$300 weekly unemployment supplement through Sept. 6.

At the same time, temperatures have warmed up and the public health situation has been rapidly improving, allowing more restaurants to offer dining services.

U.S. stocks opened higher on the data. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.

Excluding automobiles, gasoline, building materials and food services, retail sales rose 6.9 per cent last month after a revised 3.4-per-cent decrease in February. These core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have declined 3.5 per cent in February.

Strengthening domestic demand was underscored by the release of the Federal Reserve’s Beige Book report on Wednesday, which described economic activity as having “accelerated to a moderate pace from late February to early April,” and also noted that “consumer spending strengthened.”

Growth estimates for the first quarter are as high as a 9.8-per-cent annualized rate. The economy grew at a 4.3-per-cent pace in the fourth quarter. Growth is expected to top 7 per cent this year, which would be the fastest since 1984. It would follow a 3.5-per-cent contraction last year, the worst performance in 74 years.

Households have amassed about US$19-trillion in excess savings. That, together with a recovering labour market, are expected to underpin consumer spending this year.

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 193,000 to a seasonally adjusted 576,000 for the week ended April 10, the lowest level since mid-March, 2020. Economists polled by Reuters had forecast 700,000 applications for the latest week.

Despite the big drop, claims far exceed their prepandemic level. Part of the elevation in claims is because of fraud. The enhancement of the unemployment benefit programs, including the weekly subsidy, could also be encouraging some people to file for aid and others not to seek work.

Indeed, the Fed’s Beige Book also noted that “hiring remained a widespread challenge, particularly for low-wage or hourly workers, restraining job growth in some cases.”

Claims have dropped from a record 6.149 million in early April, 2020. In a healthy labour market, claims are normally in a range of 200,000 to 250,000.

But the labour market is making progress. Unadjusted claims dropped 152,833 to 612,919 last week.

Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment insurance programs, 744,894 people filed claims last week, pushing further below one million.

“Initial claims now appear to finally be on an overall downward trajectory, as the vaccine program leads to long-overdue improvements in the economy and a decline in layoffs,” said Andrew Stettner, senior fellow at The Century Foundation.

The government reported this month that employers hired 916,000 workers in March, the most in seven months. Still, employment remains 8.4 million jobs below its peak in February, 2020.

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